New Paycheck Protection Program Law Provides Greater Flexibility for BorrowersJune 5, 2020
Update: On June 5, the President signed the PPPFA into law.
Update: On June 3, the PPPFA was passed unanimously by the Senate without amendment. It now goes to President Trump, who has indicated support for the bill’s aims, for signature.
On May 28, 2020, the United States House of Representatives passed H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020 (the “PPPFA”), by a bipartisan vote of 417-1. To become law, the PPPFA must also be passed by the United States Senate and signed by President Trump.
Changes to Paycheck Protection Program
The PPPFA would make several changes to the existing Paycheck Protection Program (“PPP”) as follows:
- Extend the covered period for expenditure of the loan proceeds on permitted purposes from June 30, 2020 to December 31, 2020.
- Extend the eight week covered period for loan forgiveness from 8 weeks from the date a PPP loan is disbursed to 24 weeks. This change would give loan recipients substantially more time to spend PPP loan funds as businesses seek to recover from the impacts of the pandemic.
- Amend the “75/25” rule whereby borrowers must spend at least 75% of a PPP loan on payroll costs to qualify for full loan forgiveness, so that borrowers would now be required to spend only 60% of loan proceeds on payroll costs, thereby permitting them to use 40% of PPP loan proceeds on eligible nonpayroll expenses.
- Increase the minimum term period for PPP loans made on or after the date the PPPFA is enacted from the 2 years established by SBA rule to 5 years. For loans made prior to its enactment, the PPPFA provides that lenders and borrowers can mutually agree to extend the maturity date to 5 years.
- Create an exemption based on employee availability. During the period of February 15, 2020 and December 31, 2020, the amount of loan forgiveness would be determined without regard to a reduction in the number of full-time equivalent employees if an eligible loan recipient, in good faith, is either:
(a) able to document (i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020 and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 or,
(b) is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
- Allow borrowers who receive a PPP loan before the date of enactment of the PPPFA to elect a covered period for loan forgiveness that ends 8 weeks after the date of origination of the loan.
- Amend the current 6 month loan deferral period so that repayment of a PPP loan is now deferred until the date on which the loan forgiveness amount is remitted to the lender by the SBA (after determination of such amount based upon the borrower’s loan forgiveness application); provided, however, that if a borrower does not apply for forgiveness within 10 months of the conclusion its covered period, loan repayment must begin at that time.
- Make recipients of PPP loans eligible to delay payment of payroll taxes. Loan recipients were previously ineligible for this relief.
The Senate will now decide whether to take up the PPPFA, or present its own bill amending the terms of the PPP. Legislation currently pending in the Senate would double the covered period from 8 to 16 weeks and would leave the 75% payroll cost threshold in place (Treasury Secretary Mnuchin has maintained support for the 75% threshold). Whether or not it is the PPPFA or the Senate legislation (or some combination thereof) that progresses, given the bi-partisan support in both the House and the Senate, it seems likely that there will be legislation enacted in the near term that will provide at least some additional flexibility to borrowers.
This summary does not include or address every provision of Paycheck Protection Program under the CARES Act, which should be read in its entirety. Furthermore, pursuant to the CARES Act, the SBA continues to promulgate regulations for the implementation of the Paycheck Protection Program and, as such, there is still uncertainty relating to details of implementation.
We are here to help answer specific questions and offer advice on your options. Please contact any member of our Corporate & Business Group to discuss.